Corporate mergers occur for many reasons. For some companies, it's the chance to get bigger; for others it's a chance to gain a competitive advantage or new customers. For all the talk about the benefits of mergers, successfully integrating one company into another is often a challenge. It is not uncommon for mergers to run into problems because of a clash of corporate cultures and poor execution.

By the Numbers

Some 50 percent to 80 percent of mergers fail, according to accounting professor Robert Holthausen of the University of Pennsylvania, who cites "hundreds of studies." Reasons for failed mergers range from poor strategic moves, payment and unanticipated events. No matter how well intentioned, companies can't predict the success of a merger or how well customers will react to the combined firm. A 2004 study by Bain & Company found 70 percent of mergers failed to improve shareholder value, and a 2007 study by Hay Group and the Sorbonne found that more than 90 percent of European mergers fail.

Poor Strategy and Execution

A merger with a rival firm might look good on paper, but without a proper integration strategy, the surviving company can become bloated. In some cases, the operating efficiency management hoped to realize might take longer than expected or never materialize. Because of such problems, there is a whole cottage industry built around helping corporations manage and execute mergers.

It Boils Down to People

When a company merges with another company, it is essentially assuming another set of employees and executives. It's not uncommon for mergers to involve layoffs, which lead to anxiety and low morale, potentially undermining the whole deal. If there is poor communication from the top, workers won't be at ease with their new roles. In addition, there is also the issue of integrating another corporate culture. For example, a company that emphasizes a buttoned-up dress code might not mesh well with a company that allows casual dress and has liberal office policies. The management styles of the two companies might be too different, thereby threatening successful integration.

Consideration

If you are considering merging with another firm, an important issue is the impact of the merger on shareholder value. It's not uncommon for a company to pay a huge merger premium. Paying too much for another company destroys shareholder value if the company has to write off goodwill or the cost above book value of the acquired assets. Therefore, the ultimate scorecard for a corporate merger's success is whether it increases shareholder value. Paying too much to make the deal happen puts additional pressure on managers to execute. You must perform sufficient due diligence, consult with accountants and obtain outside appraisal to ensure you do not overpay.

About the Author

Randolf Saint-Leger began his professional writing career as a junior research analyst. His writings have appeared in various online publications as well as "First Call," a leading news source for professional fund managers. Saint-Leger holds a Master of Business Administration in finance and international business from Pace University.